If you think your 401(k) is complicated, then you don't work for the federal government. Retirement planning for people employed by Uncle Sam has a whole different set of befuddling rules.
The federal answer to the 401(k) is the Thrift Savings Plan, known as TSP. In 2012, it added a Roth option that Carol Schmidlin, president of Franklin Planning, says is a wonderful retirement planning tool with some baffling provisions.
There is no income cap restriction for contributors to Roth TSPs as there is with Roth individual retirement accounts, but the contribution limits are the same regardless of income -- those who are younger than 50 can put away $17,500 a year. Those over 50 can save $23,000.
Schmidlin says one of the most confusing aspects of the Roth is the rule that requires a participant to leave money in the Roth TSP for at least five years from the date of the first contribution in order to take penalty-free distributions -- even if the person is 59 1/2 or older.
When people contemplate opening a Roth TSP, Schmidlin says that limitation is often a concern. But a participant can get around the problem if she no longer works for the federal government. That participant can first roll her account into a Roth IRA, which doesn't have this limitation.
Current distribution rules also require savers who have both traditional and Roth TSPs to take out money proportionately. For instance, if they have $50,000 in a Roth TSP and $50,000 in a traditional TSP, they'll be required to take half of every distribution from each, paying taxes on the traditional part.
So far, there is no provision for converting from a regular TSP to a Roth TSP, although Schmidlin thinks that's coming. And as long as you are retired or otherwise separated from the federal government, you can roll the total amount into a Roth IRA to avoid these distribution rules.
You better believe, Uncle Sam knows complicated.